The FY2023 Budget Statement delivered on 14 February, Valentine’s Day this year mainly ‘revolved around moving forward in a new era’. Alongside the introduction of a list of support measures for Singaporeans and better equipping workers, one change that affected the real estate industry was the increase in Buyer's Stamp Duty (BSD) rates for higher-value properties. Read on to find out more about how this would affect you, along with other changes to existing housing policies.
Taking into account all measures announced and discussed during the Budget 2023, the effect on the real estate sector is thankfully considerably mild as compared to others.
The rise in Buyer’s Stamp Duty (BSD), being one of the more prominent updates to the real estate industry during the delivering of Budget 2023 might have come as a shock to current homebuyers, as this directly affects their home purchase. It might come as a relief to homebuyers who are after properties on the lower to mid spectrum that this latest measure mainly affects high-end luxury properties.
How does this affect properties?
This implementation, set to enhance the progressivity of the BSD regime, is then split into 2 types of affected properties - residential and non-residential properties:
- For residential properties, the portion of the value of the property in excess of $1.5 million and up to $3 million will be taxed at 5%, while that in excess of $3 million will be taxed at 6%; up from the current rate of 4%.
- For non-residential properties, the portion of the value of the property in excess of $1 million and up to $1.5 million will be taxed at 4%, while that in excess of $1.5 million will be taxed at 5%; up from the current rate of 3%.
*Credits MOF Press Release
The revised rates have already commenced, applying to all properties acquired on or after 15 February 2023. The table below offers a clearer overview of how this increase in percentage will affect you and your home purchases depending on the cost of your residential property.
For properties costing S$1.5million and below, the BSD percentage stays the same without any increase after calculations. From S$2million onwards, we start to see a 7.74% increase between the old and new rate. While this is not a negligible amount by any chance, going down the table, we are able to see the large spike in percentage increase for luxury properties, where a S$30million property will incur almost 47% increase to make the additional S$555,000 BSD payable.
Vacancy rate in Singapore
Next, let’s take a look at the vacancy rate VS change in occupied and available units in Singapore:
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Vacancy rates of completed private residential properties as seen in the table above at the end of 4th Quarter 2022 in CCR, RCR and OCR were 6.9%, 7.9%, and 3.6% respectively, compared with the 7.3%, 7.3% and 4.0% in the previous quarter.
With the ease in COVID regulations and as everyday life slowly gets back to the rhythm, the number of completed units gradually increases as seen in the graph above, by 4,245 units in 4th Quarter 2022 compared with the increase of 1,424 units in the previous quarter.
The stock of occupied private residential units (excluding ECs) then increased by 4,496 units in 4th Quarter 2022, compared with the increase of 291 units in the previous quarter. As a result, the vacancy rate of completed private residential units (excluding ECs) decreased to 5.5% as at the end of 4th Quarter 2022, from 5.7% in the previous quarter.
Availability of private residential properties
Homebuyers who are looking at currently available and completed private residential properties will have to take action sooner rather than later, especially if they are unable to wait. While there have been quite a bit of completed projects lately, it is important to note that demand is still high in the private residential sector and balance units available are lesser than one might think.
In a recent seminar organized by The Business Times, it is also advised for homebuyers to turn their attention towards the prime Core Central Region (CCR), where price gaps between private homes located in prime areas and those in other regions have narrowed significantly.
It is also noted that the CCR region is where several sales projects are approaching critical sales deadlines this year, thus heightening the chances of ‘deal sweeteners’ being given out as developers are required to pay 35% ABSD if not all units from their project are sold within 5 years from land purchase.
Are homebuyers taking action?
Despite the increase for higher-end properties, agents have remarked that there was no great rush overall for their clients to beat the tax increase that kicked in last week, though there were some transactions that have been brought forward.
While it is also possible for those who have been on-the-fence about their property purchases to take action due to a sense of urgency, it is highly likely that homebuyers will stay prudent and not make any hasty decisions as the increase is not too overwhelming.
HDB upgraders generally purchase under the S$2million mark, which incurs an additional S$5,000 that is not impossible to pay. Thus, this group of buyers are the least likely to be affected and transactions should proceed at a normal flow. Although the spike in BSD payable is quite high for properties costing S$10million and above, it is speculated that such buyers would not be as conscious regarding the excess amount payable and the BSD increase is unlikely to hurt property demand.
Transitional provision
Of course, some buyers who were granted OTP during this period of time might wonder whether this would affect their purchases. The transitional provision will then come into play as long as the following conditions were all met:
- The Option to Purchase (OTP) was granted by sellers to potential buyers on or before 14 February 2023;
- This OTP is exercised on or before 7 March 2023, or within the OTP validity period, whichever is earlier; and
- This OTP has not been varied on or after 15 February 2023.
With this, the Additional Conveyance Duties for Buyers (ACDB), which applies to qualifying acquisitions of equity interest in property holding entities (PHEs1), will be raised from up to 44% to up to 46%.
What other changes were made to housing policies?
First-timer BTO applicants/families/singles will be happy to learn of the increase in CPF housing grant offered. In a bid to support housing aspirations of Singaporeans with more prioritization towards younger first-time buyers and those with children, more support has been provided as per below to various groups of first-timers:
First-timer BTO applicants not only enjoy more support but also an additional ballot chance - which can be crucial seeing as how demand for housing is still on a high in Singapore and the staggering amount of applicants for a single BTO.
Next, first-timer families can now get up to S$80,000 CPF grant when purchasing a 2-4 room resale flat, up from the previous S$50,000. Those looking for 5-room or larger resale flats will enjoy an additional S$10,000 CPF grant.
Revised Grant for Eligible First-Timer Families
Finally, first-timer singles get to enjoy an additional S$15,000 CPF grant when purchasing a 2-4 room resale flat, up from the previous S$25,000. 5-room resale flat purchases will have a S$5,000 increase.
Revised Grant for First-Timer Singles
Effects of increased grant
The additional support will definitely go leaps and bounds in helping first-timer applicants belonging to either one of the three categories mentioned above in owning their forever home.
Analysts have also projected that the housing grants offered would help shift some demand towards the resale market, with majority of the support going towards those purchasing resale flats increasing the expected transaction volume to approximately 26,000 and 28,000 from its earlier projection of 24,000 to 26,000.
The plausible shift of demand towards the resale market will also mean a less competitive market for BTOs, further upping the chances for first-time BTO applicants in getting a unit.
On the other hand, the increase in demand for resale flats alongside increase in housing grants may lead to the eventual rise in properties’ asking prices as sellers play the demand to their advantage, especially the prices for smaller resale flats in more popular locations.
The Ministry of National Development (MND) has remarked that they are aware and remain ‘mindful of the potential impact of increasing grants in a buoyant resale market.’, which is why the offered grants were only targeted at eligible first-timers and not to all buyers.
Overall, the increased grant offers eligible buyers two viable options: 1. Taking a smaller loan which in turn reduces their monthly mortgage sum or 2. Having more resale flat options now that they have an increased budget.
All in all, other than those dabbling in luxurious properties of S$10million upwards, it is safe to say the latest Budget 2023 brings about more good news than bad. The additional support offered to those who are looking to own a home for the first time will definitely go towards making public housing more affordable and accessible. granted that the price trend for resale properties especially do not increase too sharply after these measures.
If you are looking to purchase your first flat and falls into one of the categories above OR is someone looking to purchase any residential property and is curious about how the latest set of measures would affect you, feel free to reach out to us.
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